Brokers like Morgan Stanley have an underweight rating on Bendigo and Adelaide Bank Ltd (ASX: BEN) following its FY18 report, which fell short of market expectations despite booking strong results.
Bendigo reported a statutory NPAT of $434.5 million – up 1.1% – an underlying cash earnings rise of 6.4% to $445.1 million and cash earnings per share of 92.1c, up 3.6%, with a fully-franked final dividend of 35c per share.
Bendigo's management is optimistic about its future– relying on its "customer focus, high trust ratings and customer advocacy" to provide the platform for business growth.
But what Bendigo really needs is big bank customers with loans, term deposits and savings accounts from the likes of Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC).
Bendigo shares have seen some volatility of late, rising and falling as investors rapidly change their sentiment towards the banking and finance company with an ethos firmly steeped in providing more personalised "local" offerings.
Bendigo recently cut customer fees to remain competitive with the hope of luring more customers in on that premise, but despite marketing the value of its business composition and focus on innovation to investors, the general Australian public are the ones they need to convince, and Bendigo is falling short in this department.
For the most part, the banking giants offer better value for money for customers, and the same translates for investors, which puts Bendigo in wooden spoon position for the foreseeable future for both parties.
Most investors looking for a bank stock right now would likely choose Australia and New Zealand Banking Group (ASX: ANZ) over Bendigo, given the stock is listed on the Goldman Sachs conviction list as a buy and has long been considered a choice for income investors with its attractive yield.
Last week the same broker listed Westpac as a buy after it came to a settlement with ASIC over lending breaches and with its share price at $27.69 at the time of writing – almost 12% down from its share price at this time last year.
But even if Bendigo keeps its nose clean from Banking Royal Commission scandals and releases solid results, it will likely remain the underdog with investors and customers alike due to a widespread reluctance to trust smaller players.
Foolish takeaway
From a share market perspective, while major banking shares are "cheap", Bendigo will likely have a hard time reeling in investors at present, but it could be worth keeping on your watch list as its fundamentals all look to be in place and its FY18 results were solid.
